Australian academic and blogger on politics, international relations, and culture

Normally I post a link to someone being serious/foolish and then spend several pages saying why they’re wrong and there’s better ways of looking at the world. This time however, someone being funny, in order to buffer a larger and under-represented point I’ve been wanting the make:http://dilbert.com/fast/2009-05-10/

Capitalism is often seen by the public purely as it’s visible (or at least countable) outcomes. Money, Interest, Stocks are what come to mind when you ask people. Yet, much much more than that, Capitalism is a system of trade, lending, and interaction based upon the assessed value of capital assets possessed by the parties. Where barter trade systems consider just the equivalence of one good for another, capitalism adds in considerations of the assets already (or in future owned) and allows those to become part of the exchange (ie a bank lending to you based on the value of your house, or companies selling stocks which offer part of their future profits to those who purchase now).

That is, it is a system that is highly dependent on TRUST between the various participants within the market. It is a significant historical fact that Francis Fukuyama, fresh from his controversial classic ‘the End of History’ charting the ideological victory of democratic capitalism as a way of organizing human societies, would write his second book on the question of ‘Trust’. Fukuyama would argue and through numerous case study seek to demonstrate that ‘in all successful economic societies these communities are united by trust’ (1995:9).

While we are far from the end of the economic recession, we have the US president saying he is beginning to see ‘green shoots’ and much closer to home, even positive retail growth and reductions in unemployment. Whilst these numbers are sure to dip again, and some of the shoots to be bitten by the winter chill, it is likely that at the very least the Western world can now be said to have avoided a 1930’s style depression. This recession will be severe, and take a long time to get out of (not to mention the debt to pay back), but the system has held. And despite Adams pessimism that is because fundamentally people have retained their trust in the system. In the banks to hold their money, in the stock market to chart the worth of companies, and in our political leaders to respond to the challenges and do what they can to marshal resources towards solving the crisis.
Whilst Obama’s economic moves have taken hits from the Left (most notably Paul Krugman and those supporting bank nationalisation) and from the Right (sensible conservative concerns about debt through to the nutty tea baggers), he has largely been seen to chart a pragmatic and responsive policy approach to the current economic challenges. Whilst the media have again tried to use the left-right frame to accuse Obama of becoming a socialist or alternately being captured by the big end of town, the public have responded positively to his efforts. American conceptions of if the country is on the Right Track/Wrong Track have gone up a remarkable 31% since October 2008 when Obama’s victory began to look apparent. In the last 2 months it has gone up 8% and finally moved to positive territory with a 48/44 split. Even better and clearer in its indication is news that 64% of Americans approve of Obama’s handling of the Presidency. Obama and his team may have stumbled at times, and people are still nervous about how the bank stress tests will play out, but for now there is confidence returning.

Closer to home in Australia, and the Prime Minister also enjoys significant public support. While there was a statistically significant drop since April, Labor is in comfortable election winning territory, and the PM is like his American counterpart enjoying 64% satisfaction support. Indeed this comes even as voters express significant disagreement* with the way in which the government has stimulated the economy. Rudd’s job was a little easier given his inheritance of the strong economic management of the Howard government, yet such is the trust that the government is doing what it thinks is right, the public can disagree and still show almost record support for the prime minister.

It goes back to an argument that social democrats have been making since the Industrial Revolution. Whilst their measures distort the market, affect prices and cost individuals, the resulting benefits whether delivered in welfare, working conditions or universal access to services help guarantee public support for the continuation of the capitalist system as the engine of prosperity in the community. As Franklin Delano Roosevelt would repeatedly claim, his New Deal made him the best friend capitalism ever had. He saved it from itself, a mantle Kevin Rudd would claim for himself in his 2009 essay on the Global Financial Crisis. This has often been unfairly compared to a ‘destroying the village in order to save it’ mentality, but whilst there is no guarantee that moving significantly further in the opposite direction is even better at social cohesion and stability (or is worth the cost and distortion of the market), social-democratic policies can be claimed as a useful ballast, maintaining the stability of society.

This indeed is one of the interesting contradictions of politics, in that the reinvigorated capitalist revolution of the 1980’s and 90’s, was largely championed by social conservatives who saw their policies unleash significant social change and damage to the ‘social fabric’ of Burke’s immortal metaphor.

Thankfully Adams social commentary is just a little bit too pessimistic this time. Even though great problems remain, Capitalism retains the trust of the public, and for that our national leaders deserve our support. Now to tell our kids they have to begin helping pay for those same measures …

* I put this down more to voter ignorance, both of economics and the governments approach. Of the $42 billion 2nd stimulus package only 4 billion was cash handouts, with the rest on infrastructure. Yet the media framing has largely been such that the payments are the focus.

One of the fundamental principles handed down to us from the modern birth of democracy was the imperative to separate church and state. Having had well over a thousand years of church dominated political life, thinkers in the west came to recognize that such cross-over harmed both. Government failed the people physically and the Church spiritually as both were corrupted from their primary purpose. It is also no co-incidence that America is one of the most religious places on earth due to giving the churches wide space to act outside and away from the grasp of state-doctrine & man-anointed leaders.

This principle is well ingrained, and now as we end the first decade of the 21st century I’d like to advocate another similar principle: The separation of Corporation and State

Lindsay Tanner writing in the Age this morning makes the point well in relation to health-care:

Australia has been fortunate to avoid the most extreme form of this phenomenon, where individual companies became vehicles for social welfare policy.

American car manufacturers are threatened with bankruptcy partly because they are burdened with enormous health and pension obligations. China is struggling to build a social safety net as it can no longer afford to force companies to provide services such as health care and housing.

This is something that has always intrigued me, in watching apparently pro-market forces condemn government paid health-care services. Even some of the most thoughtful tie themselves in knots trying to justify the massive costs forced onto business, all the while charting those for whom the recession has meant not just the loss of their job, but their health care too. But in spite of this burden on business, and great risk on the individual, the idea of universal coverage paid for by taxation (and lets face it US rates arn’t that much lower than anywhere else in the developed world, and such costs pale next to the defence budget) is anathema and must be rejected out of hand.

Yet why should business’s already struggling to compete as efficiently as they can, be forced to provide for the healthcare needs of their employers. They only pay for their education when it comes to specific business related learning, so why cover their general maintenance and well being too? If business’s want to add an extra incentive to attract workers thats great, but most business’s offer it only because they know they have to (in some cases are forced to) And so issues related to hiring and firing and workplace flexibility become infinitely more complex and emotionally tied up due to the link to the health of both the employee and their family. Given business’s already pay taxes, why are they forced to become a secondary social welfare vehicle ?

Yet the point is obvious in other areas too. In politics our politicians are ever more having to account for who they met and interact with, less they be revealed to have dined from the table of Lobbyists (and to which President Obama has, -at some cost to the progressive movement- banished from the white house staff)

Even more transparently, corporations and states rarely mix for a beneficial outcome to the public, from dodgy deals in no-bid contracts, to the vast extent of corporate welfare which burdens out budget and distorts our policy, particularly in primary industries such as Agriculture and Manufacturing. And whist the prophets of the free market warn darkly about the return of tariffs, the single greatest force encouraging such protectionism is the very corporations who are idolised by these same figures. Individuals and towns are often ignored by governments, but put a big corporation before a government to plead it’s case and more often than not tax payer money seems to flow their way. All for the good of the people we are told.

This was also one of the great faults of the Howard Government, which claimed to be pro-market, yet was more accurately pro-business. What major companies began at the start of its time in office, it put in all viable resources to see them continue. As I outlined a while back, the Howard government was relentless in its efforts to protect the major corporations in Australia from competition and the forces of the market, even when it hurt it’s own electoral base. That is those who advocated the most about preventing government distortion of the market to benefit the social welfare (such as in opposing regulation or taxation) were often the first to embrace their own distortions when it helped corporate welfare.

Of course no complete seperation is possible, nor should it be advocated. Just as we would lose out if we tried to ban religious arguments from our public sphere, we should not try to stop corporations advocating their case or playing their role before the public. But where possible, government should see that their mission is quite different to that of corporations, and too close a link (however much it might help in promoting wealth and prosperity) is likely to corrupt both away from their actual skills and constituency.

After the experience of the middle ages, new political thinkers realised that seperating the church and state benefited both. After the experience of the depression, fascism and the new market crashes, we should realise that separating Corporation and State will also benefit both. Unleash the market to compete as vigorously as possible, and restrain the state to keep as focused on individual freedom & well being, not business bottom lines as possible. In short, let the market, be the market. It’s a lesson those who profess to love it most, will find the hardest to accept.

During the campaign, presumably thinking of his Silicon Valley supporters, Obama proposed eliminating capital-gains taxes on start-ups in order to offset some of the tax effects that I’ve highlighted. This idea was always make-believe. As I predicted last July, the president’s just-released budget has “delayed” the proposal until 2014. Translation: it isn’t going to happen. Like the college students who stayed up late to hear Obama’s campaign speeches only to find his first significant action to be a stimulus program that will transfer about $1 trillion from them to the Baby Boomers, Silicon Valley Obama supporters may find themselves in an uncomfortable environment. A government-dominated economic era may not be an auspicious one in which to start companies that threaten big, incumbent corporations with lots of political clout.

There’s certainly an argument to be made here if indeed Obama’s policies result in higher taxes, and more regulation, but I think that last line is not just wrong, but 180 degrees wrong. Big incumbent Corporations with lots of political clout, are at their most powerful precisely when the high priests of the market are in government, not when the big government spenders are.

Whilst it may seem initiative that those on the Center-left who are cautious about the market’s power may act to dampen a dynamic market, the record of the last two decades shows the reverse is true. Center-Right governments, such as those of George W. Bush or here in Australia John Howard, are because of their beliefs, politically invested in the success of the market, and in the success of the big companies. Not only may they draw their friends, political supporters (and even vice-presidents) from Big Corporates ranks, they know that their economic credentials are being measured by the press on how well these organisations do. As such, their every incentive is to maintain as much of the status quo of the market as possible.

Here in Australia, we saw the pro-free Market government of John Howard repeatedly act to protect favoured big corporations. It privatised, the maintained the monopoly of the nations telecom Telstra (affecting both the telephone and Internet Service Provider markets) It ignored consistent outrage over the state of the supermarket industry to maintain Coles and Woolworths duopoly, it protected the airline industry and Qantas in particular from overseas competition, in healthcare policy, the new government private insurance rebate funneled millions into the big established providers. Established big business did very well under these governments. The idea of competition: not so much.

Howard’s government was in favor of a market that was prosperous amongst corporations, rather than one that was competitive between corporations. Competition is actually a rather risky thing for governments who feel their popularity is tied to the well being of the market. Competition if working well should regularly send businesses under, and with them all the jobs of their employers. It should see prices shifting about, punishing some areas of the country, rewarding others regardless of who is in a marginal electorate seat. Howard & Bush may have talked endlessly about increasing competition, and tried to reduce regulations to help reward entrepreneurial behavior, but they were also closely tied to the fortunes of the Big Corporate end of town, and hence gave these corporations significant political clout. The prosperous status quo was rewarded, not the young up and comers who made waves.

In the US a similar story repeated itself, with big business being brought into the room to make policy under the Bush Administration. No clearer sign of the rejection of such cronyism could be seen than the Obama’s ban on Lobbyists taking positions in the new administration. Corporate America’s political clout has been seriously undercut with the new government, in part due to its Big Government tendencies, not the reverse as Manzi mistakenly claims.

For the Center-Left, who are less concerned about the well being of each individual business, competition is perhaps the redeeming light of the market. Big Corporations are instead of being favoured sons welcomed in under their opponents are seen as self-interested challenges for such governments (if not being outright politically hostile in the money they send to right wing parties campaigns or via business association lobbies) Whilst Center-left too are willing to act to protect certain brands and industries (such as cars or manafacturing) these are typically industry wide and tied more to sheer numbers of jobs, than protecting the identity of particular brands. As such the Keating Government was happy to push Optus to enable competition with Telstra (then telecom) and the Rudd government is looking to small ISP’s to roll out its broadband network).

Center-Right governments may be able to claim they create better environments for new start ups and entrepreneurs, but that market concern comes at a cost of a greater political tie to the well being of the Big Corporate sector, whose interest is in anything but new corporations. What passed for pro-market rhetoric from the Howard and Bush governments was largely advocacy for the status quo. None of this is a hard and fast rule, but if as a start up your big problem is too high regulation/tax then a center-right government might be better, but if your big problem is too big competitors with political leverage, then a center-left government would be a better bet.